Part 2: The HaveNots and The Salary Cap Highjump

Before the new CBA, The HaveNots budgeted tightly how they were going to ice a fairly competitive team while the ultimate goal is to try to somehow survive for another season without huge losses. Many teams had the JHO principle as the core belief – “Just Hang On” until the new CBA arrives. Bidding for free agents never came to these owners as dreams, but only as nightmares in seeing their better players leaving town for more money elsewhere.

Currently, the Haves are forced to reign in their spending. They can’t spend their extra cash on free agent players, but they were forced to put it into their bank accounts. The “Ultra-Rich” teams are very happy with the profits rolling in and easily cut revenue sharing cheques without much chagrin. Depending on the team, some, a lot or most of the extra cash now moves to the HaveNots in annual revenue sharing payments. (See part 1 for complete details.)

In the CBA’s first season, some of the HaveNots actually could spend less on players and still be above the cap minimum. The CBA through this example was very quickly championed as the savior of the small market teams. But other HaveNots had to actually increase their player costs just to reach the cap floor. The writing was on the proverbial wall for these clubs.

With each passing season, the cap floor and ceiling kept jumping up by several million. The ceiling went from $39 Million now to $56.7 Million quickly. Similarly, the cap floor went from $21.5 Million now to $40.7 Million. Once again, player costs continue to grow at an enormous rate over revenues.

There are only 2 differences between the new CBA and that before the lockout. The NHL now mandates the speed of player cost growth through a formula that guarantees the players 54% or more of total league revenue. This was little consolation to those teams already on thin ice. The second difference between before and after the new CBA is the new revenue sharing system.

Now for some HaveNot teams, the revenue sharing turns a small loss into a breakeven or small operating profit each season. This has been another savior feature of the new CBA. Since NHL teams’ total revenue is largely based on ticket sales (70 to 75% in most cases), this CBA provision makes a lot of sense.

For even weaker hockey markets, the revenue sharing provision does little to lead to overall league competitive balance and profitability. Nashville received up to $13 Million in revenue sharing for last season. And the Preds are rumoured to receive near the same in the first season of the CBA. Although that has allowed Nashville to offset a significant amount of losses, the team has still posted losses that exceed $10 Million each year. Clearly, this team is not sustainable, just as former Preds owner Craig Leipold has concluded. Just Hang On – For How Long? For What?

The revenue sharing system isn’t offsetting these larger factors. Factors include a 3-year sharp rise in player costs to the current floor of $40.7 Million and the new CBA forcing each club to spend at least to the salary cap floor. In other words, revenue sharing isn’t bailing out the sinking ship faster than water is coming in. This is true for Nashville, but also for Atlanta, Phoenix, Carolina and Miami. For these 5 teams, they are that much closer to insolvency at worst, relocation at best.

In fact there may be other teams that might also await that same fate as the 5 above. Teams such as Buffalo (bankrupt once already), Washington, Tampa, St. Louis, Los Angeles, New York Islanders, New Jersey and Columbus are on the tipping point. Most of these teams suffer from poor attendance. Some attendances seem to be chronically challenged regardless of on-ice success. However, they may pull up their boot straps as their on-ice follies or general mismanagement may be more to blame than due to poor hockey markets. There is hope that these teams become breakeven or turn a small profit each year, regardless of their playoff fortunes.

Other teams demand noting as their financials can’t be ignored entirely for the size of the market they control. Two of the original six, Chicago and Boston, are perennial underperformers both on and off the ice. While neither team is going to relocate or fold, their caustic ownerships may be more to blame than anything else. Note that each team holds significant clout within the NHL BOGs and leads many inner circles.

While the “Insolvent 5” seem to be a foregone conclusion, the “Tipping Point 8” teams are exactly the situations the new CBA was written for – to stabilize teams in markets that are truly viable for the long term.

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Conclusion to Storm Clouds Within NHL Board of Governors:

The power game going on around the NHL BOG table summarizes as follows:

The Haves:

• The 8+ “Ultra-Rich” teams are in Gary Bettman’s corner. Also, they have a lot to gain in relocating the most troubled teams.
• The other 7+ Have Teams aren’t exactly happy propping up other teams with their own money and may not provide such a warm reception to their Commissioner. Also, they have the most to gain in relocating teams.

The HaveNots:

• The “Tipping Point 8” are fully supportive of Gary Bettman and his CBA. Also, they may support relocating teams.
• The “Insolvent 5” clearly must be wanting change in many potential forms: to the current CBA, freedom to relocate and/or sell their clubs or a contraction payout. Whether that requires a change in Commissioner is yet to play out.

Pro Bettman : +/- 16 BOGs
Lukewarm: +/- 9 BOGs
Anti Bettman: 5+ BOGs

To the NHL, NHLPA, the 30 clubs and the professional hockey media:
By not taking your preferred solution of relocating and/or selling these 5 teams from truly unviable markets you are doing the players, the owners, the staff and the fans a huge disservice to your business and the legacy of the sport of hockey. And if you believe I’m Offside in this conclusion, then you are more than offside, you might be skating in the wrong rink entirely. Let me know your thoughts!

To the Offside Blog watcher, you are welcome to share your thoughts with me too!

Chris
Chair, ManitobaMythbusters.com